Illinois Power Agency Estimates More Than $650 Million Available for Renewable Energy Credit Purchases from New Projects Through 2021

October 25, 2017

On September 29, 2017, the Illinois Power Agency (IPA) released for public comment its initial draft Long Term Renewable Resources Procurement Plan (LTRRP) for Renewable Energy Credits (RECs) pursuant to the Illinois Future Energy Jobs Act (FEJA). The proposed LTRRP sets forth the IPA’s plan for procuring RECs from qualifying wind, solar and other eligible renewable energy systems on behalf of Illinois investor-owned utilities (IOUs). IOUs are required to purchase RECs in order to fulfill their obligations to satisfy Illinois Renewable Portfolio Standard (RPS) requirements. The proposed LTRRP is extensive and complex, and raises numerous important issues for renewable energy companies including solar project developers in particular. These issues include, but are not limited to: (1) Who will purchase the energy generated from the renewable energy system and how will that affect financing for the project? (2) Is the LTRRP designed to allow the IPA to procure sufficient RECs for the IOUs to meet their RPS requirements? (3) What prices will the IPA offer for RECs produced by distributed generation (DG) and community solar systems and when will those prices be published? (4) How will the IPA adjust these prices to account for exogenous factors that could affect the economics of solar project development? (5) When will the IPA procure the remaining 800,000 solar RECs it is required to procure in its “Initial Forward Procurement” of solar RECs from utility-scale solar projects? The IPA will consider properly supported comments on these issues, further discussed herein, and all other issues raised by LTRRP, so long as such comments are submitted to the IPA by November 13, 2017. The IPA ultimately will submit its draft LTRRP, with any revisions it makes, to the Illinois Commerce Commission (ICC) for approval.

Sales of Energy and the Ability to Finance

 In order for a solar developer to finance and construct a project of any size, whether utility-scale, DG or community solar, the developer will need to be able to determine how it will sell the power generated by the project. The LTRRP appears to endorse Power Purchase Agreements (PPAs) with electricity distribution companies as a means of selling power consistent with Illinois law. However, the LTRRP does not address issues relating to PPA prices, contract terms and other factors relevant to the financing entities on which developers may need to rely.  Because the LTRRP only addresses how the IPA will procure RECs, and not how it will procure energy from projects producing RECs, the LTRRP does not provide developers with a clear path for sales of energy from a project. Any party seeking to finance and construct a renewable energy project pursuant to FEJA should consider whether the proposed LTRRP does enough to support sales of energy from solar projects and ultimately the financing and development of projects.

REC Budget

Illinois IOU purchases of RECs are subject to a “cost cap”; i.e., REC purchases may not cause the regulated rates of the IOUs to increase more than a specified amount. The LTRRP estimates that IOUs in the aggregate could pay over $650 million for RECs through 2021 without exceeding their “cost caps.” However, the LTRRP implies that the estimated amounts that can be spent on RECs will not be enough to purchase RECs in sufficient quantity from new projects to satisfy the RPS, which requires 25% of all retail electric power delivered by IOUs to be generated from renewable energy resources by 2025. The LTRRP speculates that unspent amounts in the early years of the plan can be “rolled over” to future years beyond 2021 to fill any REC spending budget gap. But the LTRRP would leave further consideration of the REC budget issue to any future biannual plan update.

Pricing for RECs from DG and Community Solar Projects

Unlike the competitively bid prices for utility-scale solar project RECs, the IPA will simply publish adjustable block prices to be paid for RECs from small (2 MW or less) DG and community solar projects. Taking into account scale economies, the IPA will publish prices per REC that will vary inversely to some extent with the capacity of the solar project to produce RECs. The LTRRP expects to procure one million RECs per year from DG and community solar projects. But the LTRRP posits only “possible” specific prices to be paid for such RECs, and a general model for the adjustable block price program. The LTRRP does not provide a final model or inputs to the model that will be used to determine the published block prices, and this makes it difficult for developers to estimate confidently how much revenue they may ultimately receive for RECs sold to IOUs through the adjustable block program. The LTRRP does recommend, however, that final prices be published within 60 days of the date of the ICC’s approval of a final plan (i.e., not later than early June 2018). Interested parties should consider: (1) whether the IPA’s plan and approach will generate attractive REC prices sufficient to help finance their projects, and (2) how the timing of pricing announcements may impact their development plans and financing.

REC Price Adjustments Due to Exogenous Factors

The LTRRP recognizes that exogenous factors could affect the economics of solar project development and that such factors could warrant adjustable block REC price adjustments. For example, the LTRRP cites an International Trade Commission case that could result in a tariff being imposed on imported solar panels; such a tariff could significantly increase solar project development costs. (See Alternative Energy Markets Await “Global Safeguard” Remedy Recommendations by U.S. International Trade Commission and Remedy Decision by President Trump (IRB No. 565), September 28, 2017.) With respect to this factor in particular, the IPA (at 107) “welcomes recommendations on how to plan to adjust final REC prices to reflect the impact on the market by the ultimate outcome of this trade case.” 

Initial Forward Procurement of Solar RECs

In September, 2017, the IPA completed an initial procurement of no more than 200,000 solar RECs from utility-scale solar projects out of the one million utility-scale solar RECs that FEJA requires the IPA to obtain in its Initial Forward Procurement. The LTRRP explicitly recognizes the IPA’s statutory obligation to conduct one or more competitive procurements to obtain the remaining 800,000 or more utility-scale project solar RECs by May 31, 2018. However, the LTRRP sets no specific dates for fulfillment of the IPA’s initial solar REC procurement obligation. 

Important Dates, Upcoming Public Hearings and Comment Period

The IPA may revise its draft LTRRP before it submits its final plan to the ICC. The IPA has scheduled three public hearings on its LTRRP to be held on October 26 (Springfield), October 31 (Chicago) and November 3 (Moline). The IPA will also consider properly supported written comments on the LTRRP submitted to the IPA by November 13, 2017. The IPA must submit its final LTRRP to the ICC on December 4, 2017. Objections to the final LTRRP may then be lodged with the ICC until December 18, 2017. By December 26, 2017, the ICC must determine whether hearings on the final LTRRP are necessary. By April 3, 2018, in any event, the ICC must enter an order confirming or modifying the LTRRP.

 If you have questions on the issues or procedures discussed in this client alert, or on any other aspect of the LTRRP or FEJA, please communicate with the authors of this client alert or your regular Bryan Cave contact.